One of the hallmarks of a hot real estate market is the emergence of listings where there is a marketing period prior to a seller reviewing offers on the property.  This typically involves listing below market value to encourage many showings and multiple offers on the offer review date.

While a seller can request no offers before a certain date, buyers and their agents are under no obligation to respect that request.  If a buyer chooses to submit a pre-emptive offer before that offer review date, it is commonly called a bully offer as it is not respecting what the seller requested.

While a bully offer can be a successful tool it can also backfire.  Let’s review the pros and cons of bully offers from the perspective of buyers and sellers.

Pros of a Bully Offer

From the perspective of a buyer, a bully offer can be desirable for a number of reasons.  First and foremost, it can prevent or reduce the level of competition for a given property.  The more time a property is on the market, the more showings can take place and the more potential buyers can decide to prepare an offer.  By jumping in early, a bully buyer is trying to buy the home before someone else decides they want it as well.  Less competition can mean a lower purchase price.

Secondly, a bully offer is a relatively simple proposition for the buyer.  They know that they need to come in at their best offer in order to be appealing enough to the seller.  They have to make peace with the offer price and conditions (or lack thereof) and know it will either work or it won’t.  For buyers who don’t enjoy the negotiating aspect, a simple take it or leave it offer is appealing.

From a seller’s perspective, a bully offer can be worth considering for a few reasons.  The most crucial reason sellers will consider a bully offer is it might mean a buyer is paying a premium to avoid competition.  Given the nature of a bully offer, it needs to be a good enough offer so that it causes a seller to forego their marketing period and exposure to the market.  This typically means a considerable premium over the list price.  It is always unknown what will happen on the chosen offer date and if a buyer comes forward early with a bully offer that meets or exceeds the seller’s expectations, a deal can be done.

A second crucial aspect to bully offers that sellers like is that they are almost always unconditional.  Every seller finds an unconditional offer appealing as it gives them a high level of certainty that the deal will proceed and they can move forward with their next steps.  While they may receive unconditional offers on their chosen offer date, there is pressure on anyone considering a bully offer to know they need to be able to give the seller a clean, certain deal if they are going to forego full market exposure.

Cons of a Bully Offer

For buyers, the biggest challenge with a bully offer is that you’re essentially negotiating with yourself.  No one else is at the table as of yet, so you need to look at not just want you’d want to pay for the property, but what you’d be willing to pay.  That’s a hard thing for some buyers to do as they worry about overpaying for a home based on a fear of competition pushing it even higher than their absolute maximum.

An additional concern for buyers is that a bully offer doesn’t necessarily mean no competition.  Typically a bully offer will seek to overwhelm the seller with a great offer that they have only a short time to accept or refuse.  Every offer to purchase a property contains an irrevocable period where the buyer is obligated to the deal if the seller accepts it as it is written.  In bully offer situations, that irrevocable period might be as short as one or two hours, whereas on an offer date it might until end of day or even a full 24 hour period.  The shorter the irrevocable period, the better chance a buyer can avoid competition, but also the higher a chance they irritate the seller by forcing them to make a decision very quickly.

On the selling side, receiving a bully offer is problematic when it isn’t lower than they would take or so high they jump at the chance.  An offer that is below their expectations can be comfortably refused as they decide to wait and see what happens on offer date.  Similarly, an offer that exceeds what they wanted by a decent margin is also easy to deal with as they accept it and are done.  When a seller receives an offer that is good, but not necessarily great, it causes lots of hand-wringing.  It may be a better offer than they receive on offer day, or it may be worse.  Some sellers find it quite difficult to accept a bully offer for fear they are leaving money on the table.

A seasoned buyer agent will always try to limit the irrevocable period on a bully offer and for sellers who don’t have equally experienced agents listing their home, it can be quite stressful.  The listing agent will always try to drum up other offers by notifying agents who have shown the home but it does take time to do so and for agents and those prospective buyers to respond.  It is a stressful time for listing agents as well as sellers as they race against the clock to see if the offer they have received is the only one they can consider now and in doing so determine if the offer price is good, bad, or somewhere in between.

Bully offers can be effective tools for a buyer but it requires their agent to understand how to best utilize them to get them the result they want without overpaying for the home.

On the sale side, receiving a bully offer can be a blessing if the buyer is willing to pay beyond what the market will likely bring on offer date, but again it requires a listing agent who knows the market and the value of the home to make sure they aren’t foregoing an even better offer on their chosen offer date.

If you’re considering buying or selling in a market like this, where bully offers are very much part of the landscape, you need to work with agents who understand how it’s done.  Don’t hesitate to get in touch with us to talk about how we can help you move forward.